Fear of investing: Divide(nd) and conquer!

I’ve read hundreds of books, articles, and blog posts about money. I save. I like to pay cash. I avoid consumer debt. I know how to make more money.

Sounds good, right? Well, I have a skeleton in my closet: I am afraid of investing. And 2013 is my year to conquer it (or at least subdue it a little).

At first glance, you may not believe me. After all, I started contributing to a 401(k) when I was 21, getting the maximum employer match. Since then, I’ve always contributed enough to get the employer match and sometimes more. In addition to my company-sponsored retirement accounts, I have my own personal Roth IRA that I contribute a small amount to each month.

Why then this fear of investing?

Compounded fears

Fear causes all sorts of dismal things, not the least of which may be missing out on compound interest and decreasing the timeframe in which to invest. Do we share any fears of investing?

Losing money. I am not afraid of losing money…now. I mean, I would rather not, but I can overlook a short-term loss for a long-term gain. But plenty of people, like my husband, are. Instead of embracing some risk, some people want to leave their money is very safe accounts – accounts that don’t keep up with inflation, so the money is lost after all.

I can’t save enough money, so why try at all? No one wants to spend their retirement worrying about money. Still, the long-term goal, the amount of money required, and the current financial responsibilities of today make it difficult to get past this fear.

Making the wrong decision. This is my greatest fear: What if I decide to invest in this and only get an 8% return on my money when I could have invested in that for a 10% return? A 2% difference over 40 years is HUGE. How would that affect my children and grandchildren?

It’s too hard/I’m not smart enough. Oh, yeah. This, too. I prefer wading through ways to earn more money or cutting expenses to deciphering methods of investing. Real estate? Stocks? Gold? Mutual funds? Index funds? Ugh. And what about all those terms? Dividends, small-cap, growth vs. income, mutual funds, and ETFs. It’s enough to make me go make homemade laundry detergent and forget this investing stuff. But that Robert Brokamp is one smart dude. I hope you’re reading his stuff. He’s smart and funny.

Investing for the future

The best way for me to be mobilized (instead of paralyzed) by my fear is to analyze my goals: Why do I really want to invest? I’ve mentioned retirement, but that’s not why I want to learn more about investing. Though we’re just in our early 30s now, our goals will change. But right now, we intend to live in our current home until we can’t take care of it anymore. Since our goal is to pay it off in five years, we’ll have decades without a mortgage. We won’t be buying a vacation home or taking exotic trips. We have a small amount of acreage, so we can grow our vegetables and raise our own animals. Obviously, I don’t know the future but it seems like our current savings rates will be more than enough to cover our retirement needs. So why worry about getting an 8% rate of return instead of a 10% return again?

A big retirement nest egg and foreign beaches are not why 2013 is my year to learn about investing. No, I have another dream, and it’s called choices.

This isn’t something new. Over the last three years, we’ve been preparing for a drop in income, so when a few opportunities presented themselves, we could say, “YES!” without worrying about how we would pay the bills. January 1, my husband started his dream job. His 2013 income will be just 60% of what he made in 2012. Because we’ve practiced living below our means, we feel (kind of) ready to live on less.

This experience showed me that, when our income exceeds our expenses, we’re not a slave to a paycheck anymore. We can say “yes” when we want to and “no” when we feel like it.

While we’re getting there, we aren’t there yet. Take me, for instance. I have this business idea. I think it’s a good one. You know, low overhead, high barrier to entry, recurring revenue, and internet-based. But I don’t have time right now to focus on it. I don’t have the time, because I am trading my time for money.

And this, this, is why I need to conquer my investing fear. If we had significant monthly investment income, I would no longer have to trade my time for money, and I could start my business. If I no longer had to trade my time for money, I could choose to spend even more time with my family. I could choose how to spend my time. Period.

Yes, investing for the short-term is something that I’ve ignored, for all the reasons mentioned above. But now that I’ve gotten a taste of freedom, I want more. If I really want more choices, I have to learn about investing.

The investing plan for 2013

So, my husband and I created an investing plan. Throughout the year, I’ll share posts occasionally about how I am learning more about investing and what I’m doing about it. I imagine that my experiences will be too elementary for many of you (if that’s you, Brokamp’s posts are so good), but I will share as much as possible to help those of you who feel, like me, that Investing 101 is still too hard.

I think a big part of it for me is having a partner who fills in the gaps of my own financial tendencies. If I were alone, I might have stuffed money into 401Ks and IRAs, and then after that chosen safe investments like CDs. But Mr. PoP gets all sorts of ideas – some riskier than others, and challenges me to think of ways that we can take our time out of the money making equation. Then my cautious, numbers-oriented self gets involved and makes real cash flow, and worst-case scenario type of predictions to estimate the risks and rewards…
So far, it’s been a winning combination. =)

We just started seriously investing last year with similar differences (only I am the risk taker and he is not). We decided to turn it into a competition/experiment. For 3 years we each get 1/2 to invest and see who fares better. Nothing crazy or anything like that…so far I am a little bit ahead .

I’m looking forward to more posts on this topic! I’m in a similar position (minus the family) — doing most things right, but with a gap when it comes to investing. Right now trying to figure out whether to hold the investments under my RRSP of TFSA is the big question…

For we Canucks here, there’s an additional wrinkle. While most folks advise a TFSA for those with a DB pension or who are lower income, TFSAs are not recognized by the IRS (this is for those who are dual US-Canadian citizens) and are considered a foreign investment. RRSPs fall under a tax treaty with the US and remain tax-deferred. Trust me–this is a BIG deal. IF you are earning 40K/yr or are a dual citizen, go with RRSPs.

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Jacqsays:

07 January 2013 at 6:11 am

I got my 12 year old interested in investing by buying him stock but he got more interested when it was a dividend paying stock.

One way for newbies to get excited about it is to see how every increment saved pays for one of your expenses – like the cross-over point in YMOYL (originally written back when you could make 15% in a CD). I still do that sometimes in my head – buying this investment for $10,000 at 6% pays out $50 each and every month which pays for half the electricity bill or whatever.

Other than that, immersion in the subject is good. Read as many books out of the library as you can and there’s a lot of good websites out there like Seeking Alpha (geared to individual stocks), bogleheads (geared to indexers), the Motley Fool…

Some books will inspire you to invest – like Derek Foster’s “Stop Working” and others did for me. But at some point, you just have to start – know that you’ll make “mistakes” / have learning experiences, and the more you learn, likely the more interested you’ll become in the subject. At least if you start when you have small amounts to invest, you won’t mess up too badly.

Yes, index funds don’t give you that clarity of what you’re getting. I suppose you could use an estimated return of x% (who knows what that will be) – whereas with a dividend it is what it is. Well, except that it can be cut.

I’m partial to dividends though – I call it my “paycheque for doing nothing.”

There are mutual funds that invest in dividend-producing stocks. Such as the Vanguard High Dividend Yield Index fund – VHDYX.

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Jacqsays:

07 January 2013 at 5:10 pm

Sandy, I’ve owned them. The ones I had rolled the dividends back into the fund. My bond funds paid out the dividends they accrued as well. I know it’s only psychological but I get the warm and fuzzies seeing the $ show up in my account – besides the fact that I’m trying to live off of dividends and not touch principal.

I am scared of investing too… I’m scared to lose and I know I can’t invest without having a solid emergency fund and some other things, so it worries me. I’ll be looking forward to hearing how you did.

I think you need to make a distinction between saving and investing. You are right on the money with #4, you aren’t smart enough to be an investor. That doesn’t mean you shouldn’t save money or that the money you save shouldn’t be invested in stock. It means you should simply buy an index fund with low fees, Vanguard suggested above is a good example, and leave your savings there. Let the market make the investment decisions for you.

You need to accept that your index fund holdings will lose value some days, months, years and realize that is irrelevant until you need to sell. If your goal for spending your savings is retirement, that is a long way off.

If your goal for spending your savings are shorter term, choose index funds that are less volatile. That usually means funds that have a higher percentage of bonds rather than stock.

If you like to gamble, and can afford to lose, then buying things like gold, stocks and pork bellies are probably better bets than going to Vegas. But the process is the same. You are willing to lose your money in the hope that you will get lucky and win big.

I wholeheartedly disagree with the contention that she is not smart enough to be an investor. In fact, I find that comment elitist and oft-putting. It colors the rest of your comment which actually had useful advice.

Anybody who is smart enough to make money can be an investor. Sharebuilder which permits people to make fractional investments is very user-friendly and has ripped the veil off of investing. Someone can invest $50 in Google whereas one single stock hovers around $400-$500. You can even have automatic deductions from your checking account

I know relatively little about investing. Hubby and I had a Sharebuilder account and brought Microsoft, McDonalds, and Wal-Mart – all companies that we are familiar and comfortable with. All together it was less than ten shares. When we owed the IRS, we liquidated the shares and saved ourselves hundreds in penalties and interest.

Think of companies whose brands you come into contact every day.

Everyone is not naturally inclined to be a Buffett, or discuss nuanced aspects of personal investing over crumpets but everyone can make their lives better.
Investing is a skill and like any other skill you must learn it. As you learn more you can expose yourself and get involved in investments with added layers of complexity.

Lastly, if you want professional advice try a fee only advisor who does not have a financial incentive to direct you toward investments where they earn commissions.

Ask friends and families for a good book – choose books that are consistent with your style of learning, diagrams for visual learners, short for busy people. A couple of good books, A Random Walk Down Wall Street, Boogleheads Guide to Investing. ..

In your downtime, do growth-oriented things listen to audio books, read 10 pages a night in a book, set up a Sharebuilder Account, schedule an appointment with a fee only advisor.

Talking about a fear is not nearly as productive as substantively addressing them with concerted action
Best of luck!

Nonetheless it is true of all of us. Actual investing requires a lot more than picking a few stocks of familiar companies.

Every time you buy a stock, someone else is selling. And every time you sell a stock, someone else is buying. Given the concentration of control over capital, its a pretty good bet both the buyer and seller are professionals who know more about the company’s prospects than you do. Your chances of buying high and/or selling low are pretty good. That isn’t the way to make money.

Maybe I will change my mind with more research, but I want to invest a small portion of my money in buying individual stocks, because I feel like that will help me understand business better. I will invest in index funds, too. For sure.
I may not figure it out, but I will learn more about investing in 2013 than I knew before.
Oh, and I am not offended. I am secure in my average intelligence .

I bought Quaker Oats stock with the proceeds of my paper route when I was about 13. I lost money, but it was fun to follow the stock and I did for a long time even after I had sold it.

I think you should just keep in mind the difference between the learning/education/entertainment value and the purpose for which you are saving. I think the savings goal will be more securely achieved through broad index funds that match the market rather than individual stock purchases.

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Megansays:

07 January 2013 at 5:19 pm

I LOVE ShareBuilder! It made the idea of investing a LOT less scary. The tools they have to help you select a stock or fund are very helpful, and I love that you can buy partial stocks. Sadly I recently closed my account with them because my husband and I made a joint account, but I would highly recommend them to new investors.

I highly recommend browsing the Bogleheads forum a bit, especially the “Investing – help with personal investment” section – there are very knowledgeable people who are ready to help with advice. If you want to go with index funds you’ll find it very useful. There is also a wiki on basic subjects, recommended books, etc

I started investing outside of 401k only last year and because for professional reasons I pretty much can’t invest in stocks, index funds are a terrific, low cost diversified alternative. I visit the forum often and while I don’t always fully agree with the recommendations, it’s providing a very useful grounding in the basics for me.

I believe you ARE smart enough as evidence by your caution around the stock market. There is much out of investors’ control there. I fussed with this idea myself but living in Canada we face much larger MERs and rather limited access to Vanguard funds. So I’ve become a boring bond-girl instead and invested in rental property to actively grow my assets. But I second what others have said about the prudence of index funds. Good luck!

Warren Buffett has always said that if your IQ is over 125, donate the extra points to charity because you don’t need them as an investor.

I don’t think being smart in the conventional sense has much to do with being a successful investor. It has more to do with controlling your emotions and checking your ego at the door. Benjamin Graham’s famous book, The Intelligent Investor explains this really well.

I agree, especially about emotions. I left my Vanguard funds and few shares of stock alone thru some downturns in the market a few years ago, and they regained their value and more. It was hard not to cash in like many others who started to panic when the market fell. Reacting emotionally would have cost me a lot.

I was also afraid of investing for a very long time and saw it as a type of gambling. But what clicked for me was learning about dollar cost averaging, taking timing out of it. I had been regularly contributing to my 401K and was comfortable with that, so we simply repeated that with index funds, and slowly we have been increasing the size of our conrtibutions over time.

My advice to anyone would be to just jump in with small monthly conributions.

I think practicing living beneath your means so you have choices is a great idea. If you are afraid of investing or are not the kind of person to take “risks” when it comes to money, its a good idea to save up some amount that you can then experiment with in terms of taking a risk. Why not test the waters and see what it could do for you.

You’ll probably get a lot of suggestions on what to do. Read through everyone’s suggestions and find the ones that work for you. My suggestions aren’t going to work for some people, while others will agree with many of them. Pick the things that work for you.

Now to my actual suggestions:

I disagree about you being “not smart enough” to understand investing. You sound like you certainly need to learn a bit, but that isn’t the same as not being smart. Just under-educated. This is OK. I work with computers and understand them, but I won’t even attempt to change the oil in my car. I don’t understand (or care to understand) cars, and am comfortable paying someone who does to do the job correctly.

The first thing I would recommend is to learn at least the basics. There is plenty of information on the web about the basics of investing, so look around a bit and find the answers that explain things to your satisfaction. Even if you decide to go with an investment advisor, you should learn a few basics first so you understand what he/she is suggesting and can make informed decisions.

Second thing I would suggest is to sit down and work out what your goal(s) are. What exactly are you investing for? Most commonly people invest for retirement, but they often fail to clearly define what they want here. They think they know, but it’s more like a hazy idea of “never working again” than “I need $x a month in income from my investments to cover my expected expenses.” At this step it’s important to track your spending for at least a year. It is a lot of work and seems dull, but until you know what you are actually spending you can’t really have a good idea of what you are likely to need a number of years down the road when you plan to retire. Your plan should set a series of annual targets that you are comfortable you can achieve, but will move you from where you are today to where you want to be when you retire in the year 20-whatever.

Third is to get into the habit of saving. Initially put some money into an emergency fund. Not only is it nice to have a cushion if something bad happens, it creates a habit that can be redirected later to fund your investing. If you have any high-interest debts (such as credit cards, etc.) it’s probably best to pay them off first since the interest saps your ability to save and invest. Depending upon your feelings about debt, low rate loans (such as a mortgage) may be ignored or you may decide you want everything cleared out before you start investing. That decision is up to you.

Once you finally understand at least the basics (most people really don’t need to understand things like Puts and Calls, etc. as they probably won’t be using those,) and you have worked out what your goals are, you are ready to begin investing. Find a form of investing that you are comfortable with. Every person you talk to will have different ideas of the “perfect” way to invest and what the “best” investments are. Since pretty much everyone is going to have different goals, that really isn’t that important. What matters is how you do reaching your goals, not how you do reaching someone else’s goals.

The one thing I strongly recommend for everyone is to not compare your progress against “the market”. You are not in a reality show competition to beat the S&P 500 or the Dow or your uncle’s cat’s portfolio of catfood and catnip companies. You want to meet and beat your own personal goals. Just focus upon those and don’t worry about what others are doing. After all, they have different goals from you. I think my people would be far less intimidated about investing if all of the indexes were to disappear, as people could spend less time in a futile competition and more time focused upon meeting their own needs.

Hurray! I’m so looking forward to your future posts. Other than retirement funds, I’m also an investment novice. I find I get more bold as I have more invested. I started by investing a little bit here and a little bit there. I figured $500 at a time was about all I could mentally handle losing so that’s what I did.

As I began receiving dividends and tracking my stocks on a daily basis, I have gained confidence and I now have plans to put $2000 into a stock once it drops to my predetermined low. I hope this is the year that I do more than just dip my toes into investing.

I think #4 is a big obstacle for a lot of people — they just don’t know what they’re doing, which is understandable, with all the overwhelming information out there.

I consider myself pretty financially-literate and yet I don’t dare try to play with the day traders, buying and selling new stocks every day. I think there are two good ways to go about investing for “every day” folks.

1. Dividend investing. Pick 12 blue chip stocks that pay a nice dividend (2.5% or better) and just dollar-cost average invest in them once a month. (I currently own Altria, JNJ, Exxon, McDonalds, Pepsi, etc., for example).

2. Index fund investing. Vanguard offers many low-fee (this is important)options where they will just pick the stocks for you. VFINX, for example, has an expense ratio of .17% and invests in companies like Apple, GE, Microsoft, AT&T, etc.

One of my next investment posts will address my investment myths. For some reason, I always equated those who bought stocks (as opposed to index funds, bonds, etc.) as day traders. You know, not acknowledging the people who buy into well-researched companies and all.
After more research, I imagine that my investment strategy will closely align with your advice.

Saying that an investment class is “gambling” just because you dont understand it is a wrong attitude to begin with. Real estate was considered the safest bet until the crash. Investing in a bubble on the other hand is always a gamble no matter how “conservative” or “safe” the underlying asset may seem. It can also never be stressed enough that using leverage is always a high risk proposition akin to gambling (again note that any house purchased on credit is a gamble that can wipe out your equity, as many have found out). Just going out your door is a gamble to begin with and in the financial world not buying something may be just as risky as buying it. A basic knowledge of all asset classes is neccessary in order to know what you are doing when investing. If one was watching the price of gold rise after 2000 they might figure out that something is wrong with the economy and avoided the crash (maybe make some money along the way too). Oil prices are also considered a bellwether for the economy and so on. The markets are constantly in flux and consistently buying one thing no matter what the price is may lead to disaster unless your investing horizon luckily coinsides with a favorable phase. Investing means monitoring the market, knowing when things are undervalued so as to buy and when they are overvalued so as to sell. It requires a basic common sense ability to make economic calculations and a developed skill to counter emotions of greed and fear that exist in all of us. These things are natural to some people, many others can learn them by study or experience, but for some it may be better to stick with a state pension and a savings plan even if it means losing some money to inflation.

Speculating in real estate was never considered a “safe investment” by anyone except those who didn’t understand it. The ratings agencies considered mortgage backed securities safe. In part because they had mortgages across multiple markets and we had never had a nationwide real estate crash. In part, because their customers were making a lot of money creating those bonds based on their AAA ratings. But even the folks writing those mortgage backed securities were shorting them.

A better example is GM, which was considered a rock solid retirement investment. People bought the stock and lived off the dividends. Safe as, well safe as GM stock. Some people got out before losing everything, but not many of the folks that bought with the idea of living off the dividends. By the time bankruptcy loomed as a real option obvious to everyone, they had lost their investment.

If you are convinced the fed is propping up the market and it will crash, then by all means sell short. You will make bundle. But this is just another fear based argument for staying out of the market. Its exactly the reason most people shouldn’t be trying to time the market.

The Fed probably is stimulating the economy, helping corporate profits, and pushing up stock prices as a result. But there is little reason to think those effects will be temporary.

If you really want to be an investor, find a business partner who knows his business and needs financing. This is fundamentally how Warren Buffet got rich.

Congratulations, Lisa! Successful investing starts with a decision to do it. Personally, I believe anyone who can buy a house, a car or clothes can invest. The financial services industry WANTS us to believe we’re idiots… so they can make money off us.

Investing is like any other endeavor: you start, and you learn more as you go. Not every investment will be the jackpot, and not every investment will be a loser. But here’s the good thing: the longer you do it, the better you get at it. And it’s the end that matters a whole lot more than the beginning.

Great article Lisa! In contributing to retirement accounts so early, it seems as though you’re not really that much of a beginner I’m looking forward to your subsequent posts on this topic.

If you’re not afraid of losing money, then you probably shouldn’t be investing in the first place. A good healthy fear of loss is probably the most important trait to have as an investor.

Only invest money that you’re willing to lose.

Diversify: pick some mutual funds, but also buy some common stocks on your own to keep yourself interested. It’s easy to get excited about investing by buying stock in a company that you know and love.

Read read read! Investment books, annual reports, Fed minutes, CBO reports, conference calls, etc. The common trait of ALL great investors is that they are voracious readers. Read A LOT before you invest.

I personally wonder what the stock market would be like if the Fed had not injected trillions of dollars of liquidity into the economy through QE infinity. I feel that that markets in general are fundamentally rigged right now in order to make people take risks with their money, maybe you would have been happy with a 5% cd a couple years ago whereas now that is not now possible due to the easing. Of course the window on this easing will eventually close, and when people can earn decent interest rates in a safer vehicle we will see.

I personally am more worried about return of my capital vs. return on my capital. This market uptrend has been going on 4 years, since the march of 09. Sooner rather than later there will be a correction, perhaps even another large one. While I am still marginally invested in stock like products, most of my money is in cash or other stable investments. When things tank again I will buy.

The vast majority of people would be better off trying to save another 10% of their money vs trying to earn another 10% on what they saved. That being said I agree low cost index funds are the safest best but even then its better to buy the fund at 50% off vs dollar cost averaging it.

I wish I could “Like” this 100 times Mike. Artificial injections of capital by the Fed or any central bank merely distort the market and cause investors to make bad decisions that they otherwise wouldn’t have made. It’s inevitably and painfully corrected by market forces.

I personally am more worried about return of my capital vs. return on my capital.: Kyle Bass agrees with you.

For me, it’s not so much a fear of investing. It’s just hard for me to imagine a time when I’ll actually have money to invest.

Right now, I am working on building my emergency fund to an amount I am comfortable with. Once that is done, my next step is to begin saving for a down payment. I have a pretty modest income and live in a high COL area. 20% down even on a modest condo is likely to be in the area of $30-40K. Because I’m not willing to completely abandon my “wants” in favor of savings, it could take me a decade to save that much (which is OK with me. I’m 30 now, and just want a place I can pay off by retirement.)

And once THAT is done, I’ll probably need extra money each month for maintenance, condo fees, etc. So without a huge uptick in my salary, it’s hard for me to imagine when I’ll ever have substantial income to invest.

But here’s the thing. It seems a lot of people are investing with the goal of early retirement, or becoming self-employed. That doesn’t hold any appeal for me. I don’t really want to work for myself. I like coming to an office every day, I like having a steady paycheck, etc.

Is it necessary for someone like me to invest outside of retirement accounts? Is it OK if I don’t do so until I’m in my 40s?

One of my next investing posts will talk about where I’m finding the money to invest. It’s not much, but it’s added up over the last two years.
Whether it’s important for you to invest outside retirement accounts, well, it’s hard to say without knowing more information. Actually it’s hard to say, no matter what. So many variables are wrapped into retirement savings.
It seems that if you’re investing 10-15% in a retirement account (and plan to do so for several decades), that you should be fine with what you’re doing.
I don’t want early retirement, either. I like working, so I want to work as long as possible. But as I mentioned in the article, I want choices…and I think learning to invest can help me with that.

This article is so timely for me because I, too, want to start investing in 2013 but have many of the same fears. Currently I’ve been exploring Betterment.com as it seems to be a good place for those of us who are not very knowledgeable about investing. Has anyone had any experience with Betterment? I’d be interested in hearing any reviews.

Good article – kudos to the author for turning this painful period into valuable learning opportunities that she can even be grateful for, instead of wallowing in the victim role.

I do have to disagree with item 9 – “Don’t quit your job without a plan.” I used to believe this, but then I got stuck in a soul-destroying position. I worked for months to try to find another job, but there was so much negative in me from my current position that I couldn’t create anything new. I finally just quit. It was terrifying, but it was wonderful. I felt like the sun had finally come out after 15 months of darkness.

It took me a good month to heal psychicly and emotionally. And then I did temp work, and freelance work. And lived very frugally! Wasn’t making much, but I felt good about my contributions for a change. About a year later I found a job in a new field, related in nature to my field of training, but in a new area (software). I have flourished in my new field for the last 15 years. But it never would have been possible if I hadn’t made the decision to leave a position that was toxic to me, and trust that I would be able to create something better if I made room for it.

Good post, Lisa! As many of us have, you could get burned once or twice until you find something you’re personally comfortable with. I pulled out of equities a few years ago, just before the 2008 crash, and moved everything to bonds. They’ve served me very well in the last 4 years–but I don’t see increase that as indefinite (especially now that everyone else moved into bonds), so last year I started spreading it all out into the “couch potato” strategy. I think I can live with the modest returns it provides. …And I don’t have to think/worry about it. Just set it, dollar-cost-average direct payments to it, and forget it.

This means you have an indefinite investment horizon when you might want to make a choice. You might have an opportunity next week where you want to use that money. That would argue for conservative investment choices.

But your goal of having choices also means that the “choices” you have available will depend on your investment returns. That is to say, your goal for the money may follow from your investment success. That allows you to take a lot of risk if you choose. If you win, you have a lot of really good choices and if your investments go badly you end up without as many good choices. You have to decide how low a downside is acceptable given the potential upside.

There are plenty of people who go to Vegas with that idea. If they win, they spend the money on great food, booze and entertainment. If they lose their gambling stake, they settle for fast food and cheap beer.

I use ShareBuilder and you’re right, there usually is a minimum amount you have to invest with mutual funds.

What I like about their site, though, is the “automatic investing” plan. You can invest in up to 12 stocks per month, for however much you want, and they will only charge you $12. The only catch is that the date of your trades is pre-planned — i.e., the 1st Tuesday of the month. If you are dollar-cost-averaging, though, it’s not really a big deal.

I like being able to buy 12 stocks every month for $12 and think it’s a pretty good deal.

I’m afraid of losing money. I’ve lost money in the past and can’t afford to lose more.

I work part-time and live on disability. There really isn’t much left over outside of my short and long-term savings accounts/goals and I’m only 34. I haven’t invested the time to really know how to invest, but I spend a good part of my energy working. I know its a catch-22.

There is no question that you’re in a tough spot. Having read your comments here for a long time, I know you don’t have much wiggle room, juggling your health and your finances.
I will share some ideas that I have come up with to find money to invest, but they may not apply to you. Anyway, I know you could make huge strides if you didn’t have to trade your time for money, but how to get there?

I am open to just about any idea. Just like with many suggestions shared here here, I will use what I can and leave the rest.

Trading time for money is a huge barrier and its difficult to find people in the online PF world that’s in a similar situation. Most people either young and healthy with full of unlimited energy, married DINK or with young children, or middle aged (or close to it) and pretty set. With that said I do look forward to reading more on the subject from you!

This is NOT a recommendation, because you won’t “Get Rich Quick,”
. . . it’s Just the way I have been investing for the last 17 years.

Warren Buffett, Rule #1: Don’t Lose.
People over 65, spend 4 time as much on medicine and
. . . millions of baby-boomers are getting over 65 every day.
Personally, I like a Dividend paying stock,
. . . that’s Dividend goes up, EVERY year, for over 50 years,http://www.investor.jnj.com/divhistory.cfm
. . . that has a “Dividend Re-Investment Plan” (DRIP)
. . . that automatically “Compounds” all the Dividends and
. . . allows me to put in optional cash (with no Fee’s)http://www.investor.jnj.com/drip.cfm

Good for you for getting committed to investing this year! I love investing and talking about it as well. I find that many people make mistakes when it comes to investing (myself included) because we don’t keep our emotions separate from our money. When we don’t separate the two then we make decisions that are led by our fears rather than commitment or knowledge. The thing I found which helped out most was getting some education. There’s plenty of free and decent investing education available on the web. That education breeds confidence and desire to invest. I also find that having an investment plan is vital to investing so it can help ground your decisions on reason rather than fear.

My husband has never been interested in Investing (with a capital I… Wall Street, etc.) But that does not mean he doesn’t make investments. He recently took over an auto repair franchise, investing in a local business and giving himself a full-time job. We’re buying a new house since we’re having a baby, and instead of selling our current house, we’re going to rent it out. While we’ll break even on the rental on a monthly basis, basically someone else will be building our equity for us. We do have IRAs, too. But I guess you can say that my husband is more hands on in his investing, much like his father was before him.

A word of caution is needed here I think. The stock market (or the markets in general) are not a magical place where everybody puts in his/her money and we all win in the end. It is a zero sum game where in order for you to profit and come out with more than you put in, someone has to lose. And of course it goes the other way too. Intelligent people like Warren Buffet, who know how to win, play this game and you are pitted against them. That is not to say that you need to be a genius or have an MBA to be successful. Some common sense and self discipline can take you a lot further than a Harvard degree. There are enough resources available today, free or at a very reasonable cost that can give you the necesary knowledge. This website is one of them. But investing, as opposed to just consitently saving, means buying low and selling high. It means making a value judgement every day on wether you will profit from buying, selling or holding something. I am sure that the vast majority if not all the people who are here reading this site can do it. If you can see good value in a fridge, a car, a house etc chances are you can see if there is value in a stock, a fund or a commodity. But it takes a lot more knowledge and effort to assess this value that it takes for an everyday item. Dollar cost averaging is not a substitute for sound value judgements. You can dollar cost average all your life only to lose everything if you have to sell at the bottom of a crash. If you are not willing or able to put in the time and study investing takes, then maybe you are better of with nothing more than a savings account. My advice would be to first make a good assesment of yourself and judge whether this is for you. Don’t ever think that you HAVE to do it. This may be the one and only sound value judgement that you will have to make. If the answer is yes, put a small amount of money (a fraction of your savings) in an index fund or a stock and let that be your motivation for embarking into the voyage of knowledge that is investing. The rest will come by itself!

“The stock market (or the markets in general) are not a magical place where everybody puts in his/her money and we all win in the end. It is a zero sum game where in order for you to profit and come out with more than you put in, someone has to lose.”

This is flat out wrong. It is not a zero sum game at all. As the productivity of a business grows, so does its stock value. Everyone who owns the stock gains and no one loses. That is why you will usually come out ahead if you stick to index stocks.

What is a zero sum game is trying to beat the market. For one person to do better than the market, someone else has to do worse. That’s what happens when you start trying to time the market or buy particular stocks low hoping that they will go up faster than the market as a whole.

The stock market is not a zero sum game. If company X invests $1 million into a new product, and that product saves other businesses $20 billion a year, then that $1 million just effectively created $20 billion. The owners and consumers all win. There are some losers, but more people come out on top. That’s how economic progress works. Think of Henry Ford and all of his cars.

I am a big proponent of investing, and in particular dividend growth investing (my current passion). If you want to build up passive income streams easily, dividends are the way to do it. By selecting socks with a consistent history (10+ years) of raising dividend distributions, you will be on your way to building solid passive income.

But like all investing, there is a chance that you will lose money. But by keeping your stock selections conservative (Blue chip, S&P500 type), you’ll get capital gains approximating the S&P500 and the dividend payouts on top of that.

It is true that if there is a crash that your portfolio will lose value. Dividends can be cut, but usually aren’t. While the Great Recession hit the financial sector pretty hard, many other dividend growth stocks kept on paying their dividends and even increased them.

Before you get started with any investment strategy, you need to spend a lot of quality time educating yourself. Read everything you can, make a plan, and continually update and revise it as you learn more.

Could you please include a discussion about taxes? I have never invested outside of a retirement account (401k and Roth) because I don’t understand how the taxes work, what long and short term gains are, what happens if I sell at a loss, etc. I have a general understanding of how stocks work and how to invest, but I’m terrified that even if I pick several successful investments, I will lose all of my winnings to the tax man.

Taxes can get complicated, so I’ll try to keep this brief. First, don’t worry about losing your gains to the tax man. You’ll lose some of them, but you’re probably already losing a way bigger portion of your salary.

Short and long term just refer to whether you’ve held the security for a year or more.

Taxes on most dividends and capital gains are taxed at “qualified” rates, which are way less than the “ordinary” rates that your wages are taxed at.

If you lose money on an investment, you’ll usually have a capital loss, which will lower your tax bill.

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